The figure below shows the short-run aggregate supply of an economy.Which of the following is likely to be true if the actual price level in this figure exceeds the expected price level? Figure 10.1 A)Equilibrium output will be Y₂ in the short run. B)Equilibrium output will be Y₁ in the short run. C)The actual unemployment rate is below the natural rate. D)Potential output is greater than actual output. E)The actual price level is less than the equilibrium price level.

Question

Quizplus · Accepted Answer

In the short run, if the actual price level exceeds the expected price level, the short-run aggregate supply curve shifts upwards, leading to a decrease in output and an increase in unemployment. However, if the actual price level exceeds the expected price level, then firms are receiving higher prices for their goods and services than they anticipated, allowing them to increase production and hire more workers. This results in lower unemployment and a level of output greater than the natural rate of output, indicating that the actual unemployment rate is below the natural rate. Therefore, the correct answer is C.

The Figure Below Shows the Short-Run Aggregate Supply of an Economy.Which